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Morningstar lifts Ebos share value, earnings forecast on Chemist Warehouse deal

Wednesday 4th July 2018

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Shares of Ebos Group earned an upgrade from Morningstar analyst Chris Kallos after the pharmaceutical and animal health products maker unexpectedly won a distribution deal from Australia's Chemist Warehouse.

In a note dated July 2, Kallos said he raised Ebos' fair value estimate to $20 a share, up from $19 a share previously, following “the surprise move” by Chemist Warehouse to switch suppliers from Sigma Healthcare, effective July 1, 2019. 

Shares of Christchurch-based Ebos jumped 6.5 percent on Tuesday to close at a record high $20.50, adding to the previous day’s 7 percent gain when it announced the Chemist Warehouse deal, an agreement Ebos expects to generate A$1 billion in the first year. The stock slipped 0.2 percent to $20.45 at today's open. 

Kallos upgraded his fiscal 2020 earnings forecast by 11 percent to $1.36 per share, up from a previous estimate for $1.22 a share. 

He anticipates that Chemist Warehouse’s contribution to Ebos revenue will represent 14 percent of Ebos’ Australian healthcare division and 10 percent of the overall business in fiscal 2020. 

As a result, Kallos lifted his forecast for the company's EPS compound annual growth rate to 11 percent, up from 8 percent previously. 

Ebos, a company that has grown primarily through acquisitions in the past 13 years such as its 2013 takeover of Australia's Symbion, has headroom for fresh deals, Kallos noted.

“We expect Ebos to continue displaying a strong balance sheet over our forecast period,” Kallos wrote.

Based on its ratio of net debt to earnings before interest depreciation and amortisation, which stood at around 1.76 times as of December 2017, Kallos estimates Ebos has another $100 million available for acquisitions, "most likely on the branded consumer product side." He predicts the ratio will "trend towards" 1.6 times in fiscal 2020. 


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